What is the difference between a municipal lease purchase and a commercial/rental lease?

The biggest difference is that only a qualified political subdivision can enter a municipal lease. Another key difference is who owns or will own the asset. Most commercial leases are rental agreements allowing the end user to use the lender's property, charging them for the use of the equipment. The end user makes payments but does not build equity in the equipment and may or may not have an option to purchase the equipment/property. There may be a high residual value set at the end of the lease with a term much shorter than the useful life of the asset.

 

With a municipal lease, the lender provides money to the end user to purchase property and charges interest for the use of that money. The term of a municipal lease generally closely matched to the equipment's approximate useful life. The end user takes title to the property and the lender takes a security interest in the property as collateral. The end user builds equity with each payment and has the option to purchase the property throughout the lease. Additionally, a municipal lease is normally subject to the annual appropriations of the end user and is financed at a low tax-exempt rate.

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